CEO’s Operating Review

CEO’S OPERATING REVIEW

Looking back over the past financial year, there is much for the team at IncentiaPay to be proud of. The transformation that we commenced executing on at the start of FY2020 is clearly moving us in the right direction, despite complexities and delays introduced by Covid-19.

While there is certainly still a long road ahead of us, we also need to acknowledge the significant progress that has been made in the turnaround of the organisation, the building of our business foundations and the alignment on our longer-term strategy. While our restructure was significant, so was the unwavering commitment of our team to our customers - Members, Fundraiser groups, Merchant partners, and Enterprise clients. I would like to acknowledge the hard work and dedication of our employees whose parallel work efforts on customer service and transformation were simultaneously achieved amidst a pandemic that has significantly impacted our team, sales revenue, and entire network of stakeholders.

As I present my first formal letter as your CEO, there is still much work to be done, but I am pleased with the outcomes of our hard work, and confident that IncentiaPay is far better positioned to capitalise on the opportunities before us.

A SOLID FOUNDATION TO BUILD ON

We have the support and backing of our major shareholders, cash funding and enviable assets. We have a brand with more than 26 years of history, a channel of more than 15,000 Fundraiser groups across Australia and New Zealand selling Entertainment Memberships, a Merchant partner base of almost 9,000 organisations offering goods and services across 20,000 merchant locations, and a Member base of more than 590,000 people (including Entertainment subscriptions, Frequent Values subscriptions and Enterprise clients).

LEVERAGING UNIQUE STAKEHOLDER RELATIONSHIPS

We have a unique relationship between our Fundraiser groups, Merchant partners and Member base. Coupled with our Enterprise clients, it presents us with a competitive advantage that is not easy to replicate. All of our underlying strategic foundations are built with these stakeholders in mind – they underpin the workings of our core business.

MEMBER BASE

• We have a premium and affluent member base • We have a known renewal rate of 50.2 per cent with

Members that redeem 12 or more offers a year

MERCHANT PARTNERS

• We have one of the largest databases of quality

Merchant partners in Australia and New Zealand • Unique coverage across multiple category types including dining, travel, activities, and retail • Best in class savings that are valid year-round without multiple restrictions, unlike other market players • Members have access to some of the most exclusive restaurants, wine dinners, and experiences, all at reduced prices

FUNDRAISER GROUPS

• We are strongly anchored in local communities with deep connections across our Fundraiser groups • We provide a unique yet simple fundraising opportunity for our Fundraisers and their supporters, who in turn, are our Members • Fundraisers have always been and will continue to be core to our value proposition

ENTERPRISE CLIENTS

• 35+ corporate clients • Clients across multiple industries including banking, insurance, superannuation, utilities, industry bodies and associations

• Widespread geographic footprint with broad depth and breadth of offers built up over many years, and applicability of interest to a wide end-user member base that is difficult and costly to replicate

FOUR-PHASED APPROACH FOR THE ROAD AHEAD

In December last year at the Annual General Meeting, I defined IncentiaPay’s four-phased approach for the transformation. It consisted of the following:

1. TURNAROUND

• Cost reduction • Book to digital transition • Focus on core business • New channels

3. STRATEGY

• Medium to long-term corporate strategy • Organic growth • Inorganic growth

2. FOUNDATIONS

• Platforms • Product • Team • Operating model

4. BRAND

• Awareness & profile • Media relations • Investor relations

TURNAROUND

IncentiaPay was a Company in need of significant restructure, as evidenced by our FY2019 financial results. Substantial progress has been made over the past eight months with our turnaround on track, our commitment to a digital future without the iconic Entertainment book completed, and a 54 per cent reduction in our underlying operating loss from $7.4 million in FY2019 to $3.4 million in FY2020. Underlying operating loss in FY2020 was impacted by the application of AASB 16, an accounting standard that removes operating lease payments off the Profit and Loss Statement and onto the Balance Sheet, and is instead replaced by depreciation and interest which appears outside of EBITDA reporting. The net effect is the removal of $1.9 million to underlying operating loss. Overall, the cost base going forward was reduced, in particular: • we reviewed and rationalised branch-based expenditure including early termination of leases where appropriate; • baseline IT expenditure was reduced as part of an

IT infrastructure review; • we consolidated our payroll systems and moved onto a single payment cycle allowing better cash control; and, • we implemented tighter controls over expenditure processes including the implementation of a purchase order system. 100 per cent digital A key decision was also made over the past financial year to transition the Company to a digital-only world. The organisation, which has sold the iconic Entertainment book to its Members for 26 years made a strategic decision that from 1 June 2020, the book would no longer be sold. In addition to cost savings from a logistics and printing perspective, additional benefits also included:

• App members redeeming at higher levels than book members and gaining greater value; • a full 12-months of validity from the date purchased; • a more environmentally sustainable delivery mechanism; • a more user-friendly experience; • the ability to add new offers at any time and allow members to take advantage of them instantly; • the ability to share a Membership across multiple devices; • greater ability to increase member retention; • better access and connection to our members via electronic communications; and, • an important step towards our fintech future. A digital transition campaign was put in place at the end of 2019 to manage the shift of book Members to the App, including free trials to encourage take up. The outcome has been in line with Company expectations, based on general attrition rates, this being the first time a book is not available, and the effects of Covid-19 on the 2020 sales season.

Paramount to the turnaround was returning our attention to the core of the Entertainment business and a focus on our Member base, Merchant partners, Fundraiser groups and Enterprise clients. By better understanding the needs of our audiences and building value propositions to serve them, we will gain far more from these mutually reinforcing relationships. Over the past financial year, there have been a number of high-level initiatives undertaken.

Member base

The Member joining process was revised, with an improved look and feel and a refreshed interface to lessen barriers and move a buyer from consideration to purchase more quickly and easily. We also launched 12 and 24 month memberships with three new product options and new standard pricing, giving the opportunity to subscribe at any time for a full year of membership from any start date. This change in

product pricing has increased the average sale by 13 per cent so far, over an eight-month period. Also new to the product mix was the opportunity to gift an Entertainment Membership online and instantly deliver it. This was launched in 2019 for Christmas.

Merchant partners As part of the organisational restructure in October, the travel and leisure department were amalgamated with the Merchant business development team to create a reduced Partnerships team. The team took responsibility for all acquisition, retention, and servicing of content clients across Entertainment memberships, Frequent Values and Enterprise clients, with accounts reallocated due to the decrease in team members.

To facilitate better Merchant servicing with a smaller team and support previous areas that were handled by an in-house production team, the process to automate Merchant onboarding, and manage content changes and additions commenced. This has resulted in the in-house build of a product that can be integrated into other technology systems in the future as needed. As at the end of June 2020, the seasonal recommit of merchants across Australia and New Zealand saw a 81 per cent retention rate. Fundraiser groups We have worked closely with our Fundraiser groups over the past financial year to deliver more value. We launched a new Fundraiser support program, to include education and better training, as well as a digital asset management solution to help store, organise, manage, create, and distribute Fundraiser marketing assets. The software solution allows the organisation to track and analyse the use of digital assets by the Fundraiser groups to better communicate and market to them. The servicing of Fundraiser groups was also restructured during the past financial year, with smaller Fundraising groups moving to an internal inside sales team, and an external call centre. In response to the need to decrease expenditure due to Covid-19, all accounts were temporarily brought back in-house and reallocated to existing account managers. We continue to use a flexible model that enables us to scale up and down our need for external resourcing. Enterprise clients Focus over the past financial year has been on servicing and protecting the existing Enterprise clients. The team have built up long-term relationships with Enterprise clients and work closely to implement health checks and monitor results. Campaigns for Enterprise clients focused on driving activations for the Frequent Values loyalty membership among their customer base, with redemption-based marketing that showcased the value of offers through a scheduled program of client communications and highlighted available and new offers.

This was effective in assisting with activations and renewals as evidenced by a large corporate client reporting a reduction in its lapsed customer rate of over 1.5 per cent, representing a seven-figure cost saving. While new sales were a secondary focus in FY2020, we continued to field interest, signing a large corporate bank, as well as one of Australia’s largest insurance companies.

Website and App enhancements

Several improvements have been made to the Entertainment website and App functionality. Among the most significant for Members included a new website homepage and new online member journey that changed the purchase, activation, and renewal flow, enabled the bulk purchase of online subscriptions, and introduced a membership gifting service. Tagging for revenue source tracking and optimisation purposes along with Google Ad-Words support was also introduced, as was the enablement of promotional codes and back-end redemption tracking for member campaign execution, and a postcode search page to find offers ‘near me’.

A number of administration improvements were made to the Fundraiser and Merchant portals of the Entertainment website, including improved functionality to reset forgotten account keys, account numbers and account passwords, and view Fundraiser balances for commission raised.

From an internal perspective, improvements were made to back-end administration portals to improve process efficiency, and benefit from better reporting functionality.

FOUNDATIONS

We worked on defining and implementing the foundations required for an efficient, long-term business to maximise customer focus and take advantage of market opportunities. This included reviewing and redefining our team, structure, platforms, and culture.

Building a high performing team

During the past financial year, we have significantly enhanced our Leadership Team with the following appointments; Ben Newling, our existing GM of Commercial was appointed to the position of Chief Operating Officer (COO), Linda McDonald was appointed as our Chief Customer Experience Officer (CXO), Toby Ellis, our existing GM of Sales was appointed as our Chief Revenue Officer (CRO), and Stacey Hampton remained as our existing General Manager of People (GM People).

Organisational restructure

During the past financial year, IncentiaPay underwent a significant organisational restructure, which saw a decrease in employee numbers. The largest area of restructure was in the Sales Team, as part of the Company’s drive for better efficiency and effectiveness. This resulted in the formation of an Inside Sales Team focused on the acquisition and account management of our smaller Fundraiser groups, and in-bound enquiries.

Building platform capability

The two areas in our business where platforms play a significant role in our future are Customer Experience (including Marketing), and Technology. Historically, we have underinvested in building platform capability in both of these areas.

Over the past financial year, we have engaged with our existing and various external providers to implement a transformation plan that going forward, will accelerate and better support the needs of our various stakeholders and help us to access untapped market potential.

Transforming our core with culture

During the past financial year, we commenced the transformation of our corporate culture, with a focus on understanding the Company’s mission, and the values and behaviours that we wish to uphold. The Company cemented and socialised its mission to create connection, a sense of belonging and a clear purpose across all our stakeholders. As a loyalty platform, our purpose is to create communities where everyone benefits, through experiences, savings, philanthropy, and the building of businesses. We also committed to defining a Company direction that gave purpose to the roles of our employees and forming, “The Entertainment Way”, and in so doing, we defined an agreed set of values to work to – Community, Challenge, Courage, and Together. We will come together, challenge ourselves and grow in support of the Entertainment community. This new “Way” is centred on a “One Team” approach in service to our stakeholders.

We have successfully spent the past six months living our new culture, improving communications and information sharing, identifying the best platforms to do so, and providing as much transparency as possible with regards to the decisions that are made. This has been particularly important from the onset of Covid-19, where we were forced into a work environment that saw us collaborating from afar and unexpectedly changing our short-term strategic focus. Despite challenging times, we have upheld the corporate values and behaviours that were defined, and I am immensely proud of the team.

Impact of Covid-19

At the timing of preparing this Annual Report, the Covid-19 pandemic continues to evolve and change, and the situation differs in Australia by state. As such, the Board and Management continue to monitor the situation and adapt. The virus has impacted the business in its entirety, as well as all its key stakeholders.

Merchant partners have been severely affected with the shutdown of restaurant dine-in, travel restrictions in place and the temporary closure of many leisure activities. As a direct response to the effect of Covid-19, the Company pivoted from a dine-in, to a takeaway focus, launching the #EatAloneTogether campaign in conjunction with the Restaurant & Catering Association of Australia (R&CA) - its purpose to drive immediate offer redemptions and support customer traffic to Merchant partners. We will continue to work with affiliated associations such as R&CA to evolve how we assist our Merchant partners through these challenging times, and evolve campaigns such as these to maintain relevance like the shift from supporting #EatAloneTogether to #TakeAwayTuesdays. The virus is expected to impact Fundraisers for the remainder of the year who are now unable to raise money as they have traditionally done. With physical events significantly impacted in the foreseeable future, there is a need to find new approaches to engaging with and gaining financial support. Entertainment’s new 100 per cent digital platform is a simple, low cost mechanism to aid our Fundraiser Groups in raising those funds.

Commencement of the fundraising season which usually starts in March was delayed by more than three months, as were Entertainment’s Fundraiser group launches which pivoted to focus on helping local communities. With unemployment rates growing, Members are facing economic hardship due to job losses or decreased income. As at the date of this report, renewal rates are lower than in previous years, with the possibility that redemption of offers will also be lower in the coming financial year than in previous periods. The outcome of this has been financially detrimental to the organisation, delaying the launch of sales season and increasing the Company’s requirements for liquidity, and funding. Due to far lower than expected member sales, there was a material impact on revenue between March and August 2020.

STRATEGY

At the end of 2019, IncentiaPay commenced a strategic engagement to review and document the medium to longterm corporate business strategy. As we move through the current turnaround phase and focus on building the business foundations, of equal importance is how we both execute in the short term, and position ourselves well to take advantage of the longer-term opportunities to 2023 and beyond. We have engaged a corporate consulting agency to work with the business to define our approach, and we look forward to working through and sharing these plans with the market in due course.

Corporate governance and risk management

IncentiaPay’s Board remain strongly committed to sound corporate governance practices and to managing risk to protect shareholders, employees, partners, customers, the environment, Company assets, and its reputation. The Board sets the risk appetite of the business to ensure that operational direction is consistent with the goals of the Company. For more information on our corporate governance, please refer to the corporate governance statement on the IncentiaPay website at www.incentiapay.com. For an outline of business risks, please refer the Business Risks section of this Annual Report.

Looking ahead

Our turnaround is on track. Despite Covid-19 delays, it is still expected to complete towards the end of next financial year. We have made substantial progress on business foundations and will continue to define and refine our overall strategy for FY2023 and beyond. We are sufficiently capitalised, with Suzerain, our largest shareholder continuing to demonstrate its ongoing confidence and commitment to the business so we can address the significant and untapped market potential we know exists.

We are working on enhanced value propositions for Members, Fundraisers, and Merchants. We intend to improve the current Fundraiser portal, as well as the process by which Fundraiser groups join Entertainment. We will create a more user friendly, automated, quicker, and easier process, that is facilitated by software, and allows these groups to access Fundraiser material needed in a manner we can analyse. We will partner with our Merchants to continue to drive value and new customers to their businesses, and enhanced insights to assist them in delivering a stronger business outcome. We will use our existing marketing and automation platform more strategically to target current and future Members with more relevant product offers, communications, and campaigns that deliver even greater performance. We will utilise our relationships with Enterprise clients in healthcare, telecommunications, and superannuation to target their customer bases fuelling both our acquisition growth strategy and our Enterprise client engagement. Technology and platforms are key to our current and future success. On 3 August 2020, we announced a strategic partnership with Paywith, an innovative fintech company with a proven track record in building game changing offer syndication, payments, and rewards solutions. This is a key step forward in our transformation strategy, with an impending product suite that is going to transform the rewards and payment industry, and positively impact thousands of not-for-profits, schools and associations. We look to our technology focused future in the fintech industry. We will leverage data and insights, improve participant experience, build member scale, focus on the breadth and depth of Merchant partner content, and better support Fundraiser groups.

A future that works for everyone

We have strong foundations, a significant opportunity to deliver better value to customers and shareholders and plans to execute. I would like to thank our Members, Fundraisers, Merchant partners and Enterprise clients for their loyalty, use of the platform and for being our most vocal champions. I would like to thank the team at IncentiaPay, including the Board, for their hard work, dedication, sacrifice, and customer focus, in a period that has been extremely challenging. Finally, thank you to our shareholders for your faith in the longer-term potential of this Company.

HENRY JONES CHIEF EXECUTIVE OFFICER